Rally returns with a life of its own

Even one of the strongest of chart signals did not permanently break the corn rally last week. This market has not been shot, stabbed, or bludgeoned into submission so far. It has a life of its own, maybe helped by the outside markets.

While petroleum futures were making a record one-day move in reaction to chaos in Libya, corn prices were fighting off an “outside day” to keep the 3-month craziness alive. Last Tuesday May corn futures made a wild new high Feb. 22 at 7.44 1/4, 24 cents above the Feb. 21 close. It then turned around and crashed, posting a 6.90 1/4 close the same day.

Outside day

This defines what the technicians call an “outside day” and in this case an outside day down. That is the market traded higher than the previous day’s high, lower than the previous day’s low, and in this case closed at the low. This defines a negative chart signal. It does not get worse than this. By this indication, the party is over.

Except, it wasn’t over. Yes, we followed with a lower day, trading a range of 6.67 1/2 (almost 77 cent off the high of the day before) to 7.04 1/2. We closed at 7.02 1/4, near the high. That was twelve cents above the previous close. We followed with one day a little lower and two sharply higher so that, here before the day’s open on March 1 again, a week later, we are back to 7.31 1/4.

Bullish chart

All that to say that we have fought off the outside day and the chart remains bullish. It is hard to say what part the outside markets have in this dip and rebound. Certainly the focus of the news has been on potential oil shortages as the Libyans don’t go to work in the oil fields. Talk a couple of days ago was that tankers are bobbing around in the Mediterranean Sea, waiting for workers to show up to load them at Libyan ports.

It would appear that Kadafi will have to give up leadership, but he hasn’t. A rope, a bullet, or a jail cell awaits him and he is holding off the rivers of change flowing toward him. Six months after he is gone we will have some stability in oil production again, and we will know what it did to corn prices. Now we can only speculate.

Ethanol

It would seem that crude is rising faster than corn, so ethanol is getting more profitable. The poor sods need something, when they are trying to make gasoline out of $7 corn. We are in the process of proving to ethanol haters that producing fuel from cornfields will starve all the poor of the world. So far we are just starving the livestock producers.

A look at soybean futures proves that this is a corn rally. The corn has only been able to pull the beans so far. We made a May futures high on Feb. 9 at 14.67 1/2. (Beans in the teens! We are getting used to these prices.) By Feb. 23, however, we had dropped most of a buck and a half, to 13.33 1/4. We have rebounded, to 13.99 1/4 on Feb. 25, then dropped again. The overnight close was at 13.70 1/2 — basically a buck off the high at the same time corn is back near its high.

The Chicago wheat futures have performed more like the soybeans than the corn. The May futures high was Feb. 9, at 9.25 1/2. The break was to 7.56 3/4 on Feb. 23, a change down $1.68 3/4. A good bounce since then has us trading 8.12 1/2 just before the March 1 day session opens.

Conclusions

Draw your own conclusions from some of this. It seems the corn is trying to pull beans and wheat higher, but can’t succeed at the extremes. I keep thinking the corn has to stop its meteoric climb. But, the March 31 USDA Planting Intentions Report is still ahead, and then the spring weather market kicks in.

Traders are focusing on the disappearing corn crop and worrying about getting a good start with a lot of acres. The market will not stand to be disappointed by either acres or conditions.